The Truth About Spending in Retirement and Why It’s Good News

In this episode of Motley Fool Hidden Gems Investing, Motley Fool retirement expert Robert Brokamp speaks with David Blanchett, the head of retirement research at Prudential Financial and a portfolio manager for PGIM, about what the data shows about real-life retirement spending. Topics covered include:

• Why retirees may not need as much inflation protection as is commonly recommended.
• Healthcare expenses: the retirement wildcard.
• Why the reality of retirement spending could result in a higher withdrawal rate.
• Other factors that suggest retirees could withdraw more than the “4% rule.”

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A full transcript is below.

This podcast was recorded on July 18, 2026.

Robert Brokamp: How your spending may change in retirement and why it might mean you could withdraw more in retirement. That's the topic of discussion on this Saturday Personal Finance edition of The Motley Fool Hidden Gems Investing podcast. Knowing how much income you'll need in retirement is a key variable in determining how much you need to have saved before you stop working. But retirement isn't just one financial goal. It's a series of annual goals. How much you need in the first year of retirement, then how much you need in the second year, and then the third year, and so on. We’re going to talk about how spending changes over the course of retirement with David Blanchett, the head of Retirement Research at Prudential Financial and a portfolio manager at PGIM. David, welcome back to the show.

David Blanchett: Good to be here.

Robert Brokamp: When it comes to retirement planning, the default assumption is that retirees need their income to go up each and every year with inflation. We see this assumption in most retirement calculators. I think most financial planners assume that, and even most of the research into retirement, including the old 4% rule. For over a decade, you've been doing research that has questioned this assumption, including a recent study. Tell us about your latest thinking about how spending changes over the course of a retirement.

David Blanchett: Sure. To be fair, I still do research where I assume [inaudible] by inflation. It's a very common assumption, like, I still use this out there a lot, but I think that one of the most important questions we've got to ask ourselves, thinking about retirement, is, like, how do we think spending's going to change over time? The most common assumption that we use in research and financial planning tools, and all this is that spending is going to increase every year by inflation. Effectively, what you're going to spend in the future is the same as what you spend today in today's dollars. Historically, inflation has averaged about 3% a year. We would assume that every year, you'll spend effectively 3% more.

In a piece of research I wrote that was published about a decade ago, and then an updated piece that was just released in the Financial Planning Review, I revisit this topic of, well, how does spending change over time? There's pretty convincing evidence that most people, as they move through retirement, won't increase their spending by the full amount of inflation. For example, if inflation is 3% a year, you might only spend 1% a year or more, and that compounds over time.

Robert Brokamp: Is this due to choice, or is it people not having enough money, and they realize, Oh, no, I shouldn't have retired; I need to cut back my spending.

David Blanchett: That's one of the most common questions I get asked about this research, both currently and then historically. I think it's a mix of both. But one thing that we can do is look at retirees who have lots and lots of money and see how their spending changes. Even if you just focus on retirees who could spend more, so they're very well funded, they actually tend to cut back as well. I think that a lot of this actually just is choice. Is fun model people talk about, like the Go-Go, the Slow-Go, and the No-Go. I think that for a lot of people, as they age, they slow down. Part of that is because they have health issues, but part of it is just because we just don't want to do as much the older we get sometimes.

Robert Brokamp: Is there anything else going on here? For example, according to the Federal Reserve, about two-thirds of the people in the age ranges of 65-74 have debt. Is it maybe they're paying off a mortgage, or is there anything like people enter retirement married, but sadly, one spouse passes away, and expenses drop? Is there anything specific about that, or is it just a general decline in spending?

David Blanchett: It's just a general decline. I've looked at it through a lot of different lenses across a lot of different cohorts and retirees, and I think it's very messy. Now, to be clear, like year over year, some households spend a lot more, some spend a lot less, but there's actually this really large body of research now looking at variety of data sets that does really strongly suggest that as people move through retirement, they don't increase their spending every year by inflation.

Robert Brokamp: You mentioned you took a look at people who have very well-funded retirements, and you calculated that about 35% of people enter retirement not well funded. Some people can look at that and say they used the term “retirement crisis.” When you look at that as someone like you and me, who educate people about how to save retirement, do you feel like, Oh, no, there is a crisis? We need to do a better job of teaching people how to determine whether they're financially ready to retire? Or do you feel more like people retire when they retire? They figure it out. They drop their spending. As you cite in this research, another research you've done. Retirees, on the whole, are pretty satisfied with their lives.

David Blanchett: Yes, so I think, first, I do think we need to do more to help more Americans save more for retirement. But if you look at any objective or subjective measure of retirement, well being of overall financial satisfaction, when people retire, they are a lot happier. Very anecdotal, but I was at a wedding last week and talking to someone who has had a significant cut in their overall spending level, but they couldn't be happier. They have a lot more freedom. I think that, yes, we need to help folks be better prepared for retirement. But if you look at the research and the surveys, most Americans find a way to make it work. If anything, like, what this research would suggest is that a lot of the models we talk about, like crisis, for example, assume that people need to increase their spending by inflation. That doesn't track with reality. People are actually better off than a lot of these models could suggest.

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Robert Brokamp: When you look at what goes down and what does go up over the course of retirement, there are a few things that do go up. One is cash contributions, which is giving to charities and maybe other people, which I love, because I think that as people get older, they're maybe building up some karma as they get ready to meet their maker. Of course is healthcare. The thing about healthcare is it's so variable. It's such a wild card in terms of whether it's going to go up for you. What does your research say about how likely it is that you're going to have a really big healthcare expense, and how do you account for that in a retirement plan?

David Blanchett: If you look at most retirees, most retirees don't experience significant unknown healthcare expenses. There's, like, the known stuff, like Medicare Part B premium, stuff like that that you're going to pay pretty much no matter what. I think where things get really tricky is later in retirement, in your 80s and 90s, the implications of some, like, long-term caravan. That can be cataclysmic. That can be incredibly expensive. That's really hard to plan for. In the paper, I look at total out-of-pocket spending based upon age of death. For most Americans, healthcare isn't that big of a deal, but there's going to be some minority, 5%, 10%, 20%, where it is a really big deal, and it's really hard to plan for. I don't want to dismiss the implications of late-life health expenses on retirement outcomes, but there is going to be some portion that it really does affect them.

Robert Brokamp: Taking all of this, the real-life spending of retirees: How should someone factor that into their retirement plan when it comes to determining how much they need before they retire, and maybe how it affects their withdrawal rates once they retire?

David Blanchett: I think the first thing is for advisors and retirees to just be aware of this effect. I think there's reasons why you might want to run a financial plan where you assume spending increases by inflation. You're building in this implicit/fund to pay for long-term care expenses. That's there. But I think that it's about having honest conversations because a lot of people get to retirement and they're really not in the best financial shape. You talked about retirement crisis, for example. I think what this does is if you have this conversation with an advisor, you understand this effect; it might make you more comfortable spending earlier in retirement when you're going to be healthier and more active and are able to enjoy that 30 or 40 years of savings. I think that again, everyone has a different retirement, different outcome. But when you incorporate this into a financial planning model, you might see, for example, in the research, initial safe withdrawal rates go from 5-ish%-66.5% if we don't assume the spending every year rises by inflation.

Robert Brokamp: Since you brought up safe withdrawal rates, let's move on from this topic of whether retirees need their income to go up every year. To the related topic of whether retirees can be flexible with their spending and how that affects the safe withdrawal rate. This brings us to another paper of yours, entitled Rethinking Safe Withdrawal Rates, which you published in May. What's the main message you're trying to convey with that research?

David Blanchett: With that research, it's that a lot of the models that we use to quantify retirement outcomes really aren't very good. The most common outcomes metric we see in financial plans is the probability of success. What that is, it's a metric where we do this thing called a Monte Carlo Projection. We run like 1,000 fake retirements. We vary market returns, and we see what happens. There's only one of two outcomes using that metric. There's either you accomplish your goal in its entirety, you get a one. If you fall $1 short, you get a zero. Then you average the percentage of trials or runs or fake retirements where you fully accomplish your goal.

Where that's problematic is is like, I wouldn't define, like, falling $1 short of your goal and the 30th year of retirement is a failure. I think that you didn't accomplish all of your goals, but using what's called a binary outcomes metric. There's just ones and zeros. It doesn't provide the right context on how you're actually doing. If you think about how we quantify outcomes, if we think about the fact that certain expenses we have in retirement are really important for us to pay, like, healthcare, like our mortgage, like, buying food, but others maybe, like, where we go on vacation, what we do with our time. If I have to cut back those, it's not that big of a deal. When we wrap this all together, what it suggests is that people can probably spend closer to, like, five, 5.5% out of the gate retirement versus 4%, which you often see in, I think, more simplistic retirement income forecasts.

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Robert Brokamp: One of the things I thought was interesting in this research that you did was helping people gauge their withdrawal, based on how much of their essential expenses need to be covered by their portfolio, and I think more retirees should think in terms of, this is what I absolutely need to cover versus this is the stuff that's a little more discretionary. As you said, you cut back, and the research indicates that if you have a large part of your portfolio covering basically a flexible portfolio, you really can start at a higher withdrawal rate. On the other hand, if your portfolio is covering a lot of essential expenses, maybe you need to start at a lower rate.

David Blanchett: Yes. I think that a really good rule of thumb in retirement is to have all of your essential expenses covered with lifetime income. What that does is it, I think, there is the more traditional economic benefits of Alcan and lifetime income. There's also just that behavioral component. If you know that no matter how long you survive, you've got the basics cover. Like that better enables you to spin from your portfolio, and the key to your point is that you can take out a higher withdrawal rate. If you're willing to cut back if you have to, then you can spend more initially. It's a trade. The more flexibility you have around how much you spend in the future, the more you can take out today.

Robert Brokamp: David, this has been another fascinating discussion. Thank you so much for joining us.

David Blanchett: True thing.

Robert Brokamp: That, my Foolish friends, is the show. Thank you so much for listening, and thanks to Bart Shannon, the engineer for this episode.

As always, people on the program may have interest in the investments they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell investments based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Robert Brokamp. Fool on, everybody.

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